UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): March 29, 2006
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AFG ENTERPRISES USA, INC.
(Exact Name of Registrant as Specified in its Charter)
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Nevada 000-28515 84-1249735
(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation or Organization) Identification No.)
181 Wells Avenue, Suite 100, Newton, Massachusetts 02459
(Address of Principal Executive Offices) (Zip Code)
(617) 928-6001
(Registrant's telephone number,
including area code)
73-595 El Paseo, Suite 2204, Palm Desert, California 92660
(Former Name or Former Address, if Changed Since Last Report)
Copies to:
Allen Z. Sussman, Esq.
Morrison & Foerster LLP
555 West Fifth Street
Los Angeles, CA 90013
Phone: (213) 892-5200
Fax: (213) 892-5454
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
CAP(SM) Financing - Private Placement of Notes and Warrants
On March 29, 2006, AFG Enterprises USA, Inc., a Nevada corporation (the
"Company"), entered into a Securities Purchase Agreement (the "Purchase
Agreement") with each of the investors listed on the Schedule of Buyers attached
thereto (the "Buyers"), pursuant to which the Buyers agreed to purchase (i) the
Company's Senior Secured Nonconvertible Notes due 2011 (the "Nonconvertible
Notes") in an aggregate principal amount of $50,000,000, which Nonconvertible
Notes may be exchanged for Senior Secured Convertible Notes due 2011 (the
"Convertible Notes", and together with the Nonconvertible Notes, the "Notes") or
redeemed under certain circumstances, and which Convertible Notes are
convertible into shares of the Company's common stock (the "Conversion Shares");
and (ii) warrants (the "Warrants") to acquire in the aggregate up to 6,875,000
shares of Company common stock in such amounts set forth opposite each Buyer's
name in the Schedule of Buyers attached to the Purchase Agreement (the "Warrant
Shares"), exercisable from the earlier of six months after issuance or the
Threshold Acquisition Date (as such term is defined in the Indenture, described
below) until March 29, 2011 at an exercise price equal to the lower of $8.00 and
125% of the per share price of the Company's common stock to be sold in a new
private placement transaction which the Company intends to complete within six
months. The purchase and sale of the Notes and Warrants was consummated on March
29, 2006.
On March 29, 2006, the Company also entered into a Registration Rights Agreement
("Registration Rights Agreement") with the Buyers, whereby the Company agreed to
provide certain registration rights in respect of the Conversion Shares and the
Warrant Shares under the Securities Act of 1933 and the rules and regulations
promulgated thereunder, and applicable state securities laws.
Pursuant to the terms of an Indenture dated as of March 29, 2006 (the
"Indenture") executed by the Company, as Issuer, and The Bank of New York, as
Trustee (in such capacity, the "Trustee"), the Company issued the Nonconvertible
Notes to the Buyers. Under the terms of the Indenture and the Escrow Agreement
dated as of March 29, 2006 (the "Escrow Agreement") between the Company and the
Trustee, ninety-five percent of the proceeds of the Nonconvertible Notes were
paid into an interest-bearing account (the "Escrow Account") maintained by the
Escrow Agent for the benefit of the holders of the Nonconvertible Notes (the
"Nonconvertible Holders").
While any Nonconvertible Notes are outstanding, the Company may propose to
consummate a business combination transaction in which the Company will acquire
by merger, securities purchase, asset purchase or otherwise, a majority of the
assets or equity of another entity for a purchase price of at least $15,000,000,
and each Nonconvertible Holders may vote to approve such transaction. Approval
of a business combination transaction requires the affirmative vote of holders
of at least 75% of the principal amount of outstanding Nonconvertible Notes. The
amount funded from the Escrow Account must be (i) at least 50% of the amount
required for an approved business combination transaction (including purchase
price, fees and expenses of the transaction and additional working capital
requirements of the Company), unless the available amount from the Escrow
Account at such time is less than 50% of the amount required, in which case such
amount shall equal the available amount, and (ii) at least $15 million. A pro
rata amount of the principal amount of the Nonconvertible Notes of each
Nonconvertible Holder voting in favor of such business combination transaction
will be exchanged for Convertible Notes, and an amount equal to the total
principal amount of such exchanged Nonconvertible Notes will be released from
the Escrow Account and used to consummate such business combination transaction.
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The indebtedness evidenced by the Notes is senior secured indebtedness of the
Company, and ranks superior to the Company's other indebtedness. As security for
the Company's obligations under the Indenture, the Company and FP Technology
Holdings, Inc., a Delaware corporation and wholly owned subsidiary of the
Company ("FPT"), have each executed (i) a Security Agreement dated as of March
29, 2006 (the "Security Agreement"), pursuant to which the Company and FPT
granted a security interest in all assets of the Company and FPT in favor of the
Trustee, in its capacity as collateral agent for the Nonconvertible Holders and
the holders of the Convertible Notes under the Indenture (in such capacity, the
"Collateral Agent"), and (ii) a Pledge Agreement dated as of March 29, 2006,
pursuant to which the Company pledged its interest in FPT in favor of the
Collateral Agent. FPT has executed a separate Guaranty dated as of March 29,
2006 in favor of the Collateral Agent ("Guaranty").
Terms of the Notes
The following are certain additional material terms of the Notes (capitalized
terms used but not defined in this discussion have the meanings ascribed to such
terms in the Indenture):
1. Interest Rate. Interest on the Notes accrues at a rate equal to the
greater of (A) 4.51% and (B) the three month U.S. Treasury Rate (as
reported on Bloomberg). The applicable Interest Rate will be
determined for each quarterly interest period on the first Trading Day
of such period. Interest on the Notes will accrue from the most recent
date to which interest has been paid, or if no interest has been paid,
from March 29 2006, until the Principal Amount is paid or duly made
available for payment.
2. Redemption Right of the Holder. Upon the consummation of an Approved
Business Combination Transaction, the Company will automatically redeem
the Business Combination Pro Rata Transaction Amount of Holders of
Nonconvertible Notes voting against the applicable Approval Business
Combination Transaction and if a Holder votes against all Approved
Business Combination Transactions, thirty-one days after the Threshold
Acquisition Date, the remaining outstanding amount of such Holder's
Note.
3. Redemption by the Company at the Option of the Holder. Subject to the
terms and conditions of the Indenture, the Company will become
obligated, at the option of the Holder, (i) to redeem the Notes upon
the request of such Holder after the failure by the Company to achieve
the numbers of subscribers required by Section 10.17(b) of the
Indenture in any two consecutive fiscal quarters, (ii) to redeem the
Notes upon the request of such Holder at any time after the 18 month
anniversary of the original issuance of the Nonconvertible Notes, (iii)
in connection with the Holder's making an Additional Contribution, or
(iv) if the Company does not raise at least $7,000,000 in additional
capital pursuant to an equity offering within six months of the initial
issuance of the Notes at the Optional Redemption Price, (which Optional
Redemption Price will be paid in cash).
4. Repurchase by the Company at the Option of the Holder Upon a
Fundamental Change. Subject to the terms and conditions of the
Indenture, the Company will become obligated, at the option of the
Holder, to repurchase such Holder's Notes if a Fundamental Change
occurs at any time prior to the Stated Maturity at the Fundamental
Change Repurchase Price, (which Fundamental Change Repurchase Price,
excluding the Make-Whole Premium, will be paid in cash, plus any
Make-Whole Premium required by the terms of the Indenture).
5. Withdrawal of Fundamental Change Repurchase Notice. Holders have the right
to withdraw, in whole or in part, any Fundamental Change Repurchase
Notice, by delivering to the Paying Agent a written notice of withdrawal
in accordance with the provisions of the Indenture.
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6. Payment of Redemption Price and Fundamental Change Repurchase Price.
If cash sufficient to pay the Redemption Price or Fundamental Change
Repurchase Price as the case may be, of all Notes or portions thereof
to be redeemed or repurchased on a Redemption Date or on a Fundamental
Change, as the case may be, is deposited with the Paying Agent on the
Trading Day preceding the Redemption Date or the Fundamental Change
Settlement Date, as the case may be, the Notes to be redeemed or
repurchased will cease to be Outstanding and interest and Liquidated
Damages, if any, will cease to accrue on such Notes (or portions
thereof) immediately after such Redemption Date or Fundamental Change
Settlement Date, as the case may be, and the Holder thereof will have
no other rights as such (other than the right to receive the Redemption
Price or Fundamental Change Repurchase Price as the case may be) upon
surrender of such Note.
7. Business Combination Transactions. At any time after the date hereof,
the Company may seek the approval of the Nonconvertible Holders to a
Business Combination Proposal by delivering a Business Combination
Notice to the Nonconvertible Holders no earlier than sixty (60) Trading
Days and no later than twenty (20) Trading Days prior to the date of
the Business Combination Vote. The record date for any Business
Combination Vote will be such date as set by the Company in the
Business Combination Notice, which will be at least five (5) Trading
Days prior to the date of such Business Combination Vote. The
affirmative vote of Nonconvertible Holders of at least 75% in aggregate
Principal Amount of the Outstanding Notes are required to approve any
Business Combination Proposal. Within ten (10) Trading Days following
the consummation of such Business Combination Transaction, the Trustee
will deliver a notice to each Nonconvertible Holder listing the
Available Amount of the Company following the consummation of such
Business Combination Transaction and the Holder's Business Combination
Transaction Pro Rata Amount of such Business Combination Transaction.
8. Penalty for Failure to Consummate Business Combination. If Holders of at
least 75% in aggregate Principal Amount of the Outstanding Nonconvertible
Notes fail to vote in favor of a Business Combination Proposal, the
Company will not be permitted to present any further Business Combination
Proposals to the Holders for a thirty day period thereafter.
9. Event of Default. If an Event of Default will occur and be continuing, the
Principal Amount plus accrued and unpaid interest and Liquidated Damages,
if any, through such date on all the Notes may be declared due and payable
in the manner and with the effect provided in the Indenture.
The securities issued under the Purchase Agreement were not registered under the
Securities Act of 1933, as amended, and may not be offered or sold in the United
States absent registration under the Securities Act and applicable state
securities laws or an applicable exemption from those registration requirements.
The following agreements are attached as exhibits to this Report: (i) Purchase
Agreement; (ii) Indenture; (iii) Form of Global Note; (iv) Form of Warrants; (v)
Escrow Agreement; (vi) Security Agreement; (vii) Pledge Agreement; (viii)
Guaranty; (ix) Registration Rights Agreement; (x) and Account Control Agreement.
Agreements with Trident Growth Fund, LP
The Company completed its acquisition of FPT on March 29, 2006 (the "FPT
Acquisition"). In connection with the FPT Acquisition, on March 29, 2006 the
Company entered into a Master Amendment (the "Master Amendment"), by and among
the Company, FPT and Trident Growth Fund, L.P. ("Trident"). The Master Amendment
amended the operative documents entered into by FPT in September and November
2005 relating to certain financing transactions between FPT and Trident,
pursuant to which Trident provided an aggregate of $2,500,000 in debt financing
to FPT. The Master Amendment also added the Company as a party to certain of
these agreements, including the Debentures and Warrants. The Master Amendment is
attached as an exhibit to this Report.
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The Master Amendment amended the following agreements (the "Trident Financing
Documents") and added the Company as a party to each of them, each of which is
attached as an exhibit to this Report: (i) Securities Purchase Agreement, dated
September 12, 2005, as amended by that First Amendment dated November 15, 2005;
(ii) 12% Senior Secured Convertible Debentures, dated September 13, 2005 and
November 15, 2005, in the aggregate initial principal amount of $2,500,000; and
(iii) Common Stock Purchase Warrants dated September 13, 2005 and November 15,
2005.
In addition, on March 29, 2006, the Company entered into an Intercreditor and
Subordination Agreement with FP and Trident (the "Subordination Agreement"),
pursuant to which Trident agreed to subordinate its rights under the Trident
Financing Documents, including a Security Agreement, dated September 13, 2005,
entered into between Trident and FPT (the "Security Agreement"), to the rights
of the Holders of the Notes. Each of the Subordination Agreement and Security
Agreement is attached hereto as an exhibit.
Private Placement of Common Stock
The Company was a party to a certain Credit Agreement, dated as of July 15, 2003
(the "Credit Agreement"), with Acclaim Financial Group Venture II, LLC ("AFGV")
pursuant to which the Company was indebted to AFGV in the approximate amount of
$313,421.44 as of March 29, 2006 (the "Claim"). On March 29, 2006, AFGV sold its
rights to the Claim to Benchmark Equity Group, Inc. ("BMEG"), which agreed with
the Company to cancel the Claim in full in exchange for 1,008,062 shares of
common stock of the Company to be issued to BMEG or its designees, pursuant to
an Exchange Agreement between the Company and BMEG (the "Exchange Agreement").
On March 29, 2006, the Company issued 1,008,062 shares of the Company's common
stock to BMEG and its designees pursuant to the Exchange Agreement. The Credit
Agreement and Exchange Agreement are attached as exhibits to this Report.
The foregoing descriptions of material agreements of the Company are summary
only and are qualified in their entirety by reference to the copies thereof
attached hereto as exhibits.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
Reference is made to the disclosure set forth under Item 1.01 above, which is
incorporated herein by reference.
Item 3.02 Unregistered Sales of Equity Securities
Reference is made to the disclosure set forth under Item 1.01 above, which is
incorporated herein by reference.
Item 5.01 Changes in Control of Registrant.
Reference is made to the disclosure set forth under Item 1.01 above, which is
incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits
(d) Exhibit index.
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Exhibit No. Description
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99.1 Securities Purchase Agreement, dated as of March 29, 2006,
by and among AFG Enterprises USA, Inc. and the investors
listed on the Schedule of Buyers attached thereto
99.2 Indenture, dated as of March 29, 2006, between AFG
Enterprises USA, Inc. and The Bank of New York
99.3 Form of Global Senior Secured Nonconvertible Note Due
2011, dated as of March 29, 2006
99.4 Form of Warrant, dated as of March 29, 2006
99.5 Escrow Agreement, dated as of March 29, 2006, by and
between The Bank of New York, as Escrow Agent, The Bank of
New York, as Collateral Agent, The Bank of New York, as
Trustee for the holders of certain notes of the Company
under the Indenture dated as of as of March 29, 2006 with
the Company, and the Company.
99.6 Security Agreement, dated as of March 29, 2006, by AFG
Enterprises USA, Inc. and certain Guarantors in favor of
The Bank of New York in its capacity as collateral agent
for the Holders
99.7 Pledge Agreement, dated as of March 29, 2006, made by
certain pledgors, in favor of The Bank of New York, in its
capacity as collateral agent
99.8 Guaranty, dated as of March 29, 2006, made by FP Technology
Holdings, Inc. in favor of The Bank of New York, in its
capacity as collateral agent
99.9 Registration Rights Agreement, dated as of March 29, 2006,
of AFG Enterprises USA, Inc.
99.10 Account Control Agreement by and among AFG Enterprises USA
Inc. and The Bank of New York.
99.11 Master Amendment, dated as of March 29, 2006, by and
between FP Technology Holdings, Inc., Trident Growth Fund,
L.P. and AFG Enterprises USA, Inc.
99.12 Securities Purchase Agreement, dated as of September 12,
2005, by and among FP Technology Holdings, Inc. and
Trident Growth Fund, L.P.
99.13 Form of 12% Senior Secured Convertible Debenture of FP
Technology Holdings, Inc. issued in initial principal
amounts of $2,500,000
99.14 Form of Warrants issued to Trident Growth Fund, L.P.
99.15 Intercreditor and Subordination Agreement, dated as of
March 29, 2006, by Trident Growth Fund, L.P., AFG
Enterprises USA, Inc. and FP Technology Holdings, Inc., in
favor of the holders of the Senior Indebtedness and The
Bank of New York, a New York corporation, as collateral
agent for the Senior Lenders
99.16 Security Agreement, dated as of September 13, 2005, by and
among FP Technology holdings, Inc. and Trident Growth
Fund, L.P., and First Amendment thereto, dated as of
November 15, 2005.
99.17 Credit Agreement, dated as of July 15, 2003, by and between
AFG Enterprises USA, Inc. and Acclaim Financial Group
Ventures II, LLC (incorporated by reference from Exhibit
10.11 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 2002, filed on April 20,
2005).
99.18 Exchange Agreement, made as of March 29, 2006, by and
between AFG Enterprises USA, Inc. and Benchmark Equity
Group, Inc.
99.19 Placement Agreement, dated as of November 3, 2005, by and
between FP Technology Holdings, inc. and Rodman & Renshaw,
LLC
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 4, 2006
AFG Enterprises USA, Inc.
By: /s/ Stephen Peary
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Stephen Peary
Chief Financial Officer
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